Watch Out!  As usual for this time of year, there is another email scam going around, with people posing as HMRC.  Always contact your accountant – do not reply to any emails from HMRC however plausible they sound. 

Current email scam reads along the following lines:

“After the last annual calculation of your fiscal activity, we have determined that you are eligible to receive a tax refund of 973.90 GBP. Please submit the tax refund request and allow us 5-7 days in order to process it.

Please download the document attached to this email to confirm your identity.

Note: You will need to provide a valid bank accoun in which the funds will be payed to.
A refund can be delayed for some reasons, for example submitting invalid records or applying after deadline.”

Best Regards,
HM Revenue & Customs.

The Problem The legislation couldn’t have come at a worse time when temporary workers have become the preferred option for employers and businesses looking to avoid taking on unnecessary full time staff.  It is still not crystal clear whether the impact of the changes are going to be a problem in practice for the agency or employer (hirer). 

Possible solutions

1. The only way I can see around the Workers Directive is to not employ temporary staff for longer than 12 weeks, the cut-off point before they are entitled to full time employment rights.
2. The alternative is a Self-employment agreement when employing casual workers showing the Agency Workers Directive does not apply.
3. In situations where workers are engaged in the medium to long term and employment is not a satisfactory option for either party, the Service Provider could set themselves up as a Limited company if there is no other way forward for the “hirer”.

How has the Agency Workers Directive impacted your plans to recruit temps?

• Go back to basics: tighten financial management and make sure debtors stay within payment terms. Ensure your books are reconciled to your bank account and all differences explained. Chase clients as soon as payment terms are exceeded. Identify high or extraordinary types of expenditure in historical records e.g. insurance premiums due and consider spreading payments to assist cash flow.
• Ensure books written up regularly so they are a useful financial tool rather than something for the taxman.
• Consider trading as Sole Trader or Partnership whereby availability of loss relief is more flexible
• Be nice to your Bank Manager
• Always talk and negotiate with creditors if you can’t pay for any reason. Don’t stick your head in the sand – it won’t go away.
• Don’t flog a dead horse. Where a business is broken, wind it up. Declaring yourself bankrupt as sole trader is not recommended. Limited companies who think their trading model is longer viable should wind up promptly to limit losses, restructure and move forward. Even if Limited Liability company, creditors can pursue directors personally where finances are mis-managed.

At the beginning of year there were all these growth projections which personally I didn’t believe. Economists always quote 2% as the average growth rate and to be told we will be achieving this level of growth at a time when Greece was defaulting and there was a secondary banking crisis was just not plausible.

No-one really doubts we are in or are heading into a debt/sovereign crisis and that we need growth. Ed Balls and George Osborne’s cosy-up on Andrew Marr’s sofa at the weekend was fooling no-one. Growth is the white elephant in the room and until we have growth it won’t get any better. To my mind, growth is not going to come from the bigger companies. I really do believe that until we get small businesses going through an organic process and growing you won’t see any green shoots.

Large companies are like flowers in the garden, they bloom but then you can’t maintain them forever. Some companies have become too big for their pots and therefore unmanageable. Think about the recent announcement in the news where the Government has been paying large IT companies £2,500 for a PC. It just shows to my mind that some of the larger companies have become full of the law of unintended circumstance leading to irrational results. Then we were at a time when we could afford irrational cheques but those days are long gone.

So  I welcome anything the Coalition is doing for the small business. The Chancellor’s Autumn Statement is a start but it’s essentially tinkering at the edges.  The credit easing scheme for the small business needs some careful thought too. The proposed National Loan Guarantee Scheme could just encourage banks to switch small businesses to these Government backed loans at the risk of the tax payer.

The last time there was any real Government support for the small business was when Mrs Thatcher was in power and we’ve not seen anything since. I think we have to say that the big business hasn’t produced enough results to stave off the problems we have at the moment. The real entrepreneurs, doing what Richard Branson did all those years ago, are what we need. And the Coalition have been slow to address opening up tendering lists to small companies.

What’s more, we should be inspiring the younger generation because they are tomorrow’s entrepreneurs. We need to change the old guard with businesses that have energy and new ideas.

It’s all about growth and to my mind large organizations need refreshing. The garden needs a good prune to make room for some growth from little green shoots!

How businesses can benefit from capital allowances in a nutshell

Businesses in the UK are entitled to claim capital allowances to reduce Corporation or Income tax on profits. Whether a Sole trader, Partnership or Limited company, if you’re planning on buying capital equipment that will last longer than a year then if you act now (before your accounting year end) you could reduce your overall tax bill.

What are capital allowances and how do they work?

Capital allowances permit businesses to write off the cost of capital assets such as plant and machinery, against taxable income. They take the place of commercial depreciation, which is not allowed for tax purposes.

Currently, business owners can spend up to £100,000 per annum on new assets for their business and reduce their taxable profits by this amount on most plant or machinery. This capital allowance is known as the Annual Investment Allowance (AIA).

Moving forward, claiming the AIA will become more difficult. The reduction in capital allowance is effective from 6 April 2012 for sole traders & partners and 1 April 2012 for Limited companies.

Which purchases can’t I claim capital allowance for?

• Cars
• Assets your business buys before the last accounting period before it stops trading
• Assets introduced into the business from another business
• Personal assets introduced into the business that you already owned e.g. office chair
• Assets given to your business

What personal tax benefits come with the Annual Investment Allowance?

Apart from reducing the amount of tax payable (by up to 50% for additional rate taxpayers), an AIA claim can help protect the personal allowance of a business owner earning in excess of £100,000 in that initial year or purchase.

Follow my tweets on Chancellor’s Autumn Statement live 29 Nov

The non-domicile reform: what does this mean?

Summer 2011 saw HM Revenue & Customs, HM Treasury and the Government publish a consultation paper called “The reform of the taxation of non-domiciled individuals.” In essence this consultation is focusing on the taxation of non-domiciled individuals and a statutory definition of non-residence.

Changes to taxation of non-domiciles

Non-domiciles can claim tax on what is called the remittance basis and from 2008 an annual remittance charge of £30,000 was introduced. The £30,000 charge will be retained for non-doms resident for seven tax years. From 6 April next year, a new £50,000 charge will be introduced for those who wish to retain their non dom status and have been non-domiciled for at least 12 tax years.

The Gaines-Cooper case

October 20^th saw the Supreme Court side with HMRC and throw out Mr Gaines-Cooper’s residence status challenge. This high profile case has created uncertainty over when the taxman would treat a taxpayer as a non-resident.The Government’s consultation on the introduction of a simple and transparent residency test is now more important than ever.

Changes to Tax residency rules

HM Revenue and Customs is proposing to change the counting system for determining residency and changes to the non-domicile taxation. The counting issue could affect expatriates and how much time they spend in the UK. Under new proposals the day of arrival and departure will count.

The Gaines-Cooper case outcome tells accountants we can’t maintain the view on residency status that we’ve held for last 10 years. Anyone looking at exit planning will need to wait for the Government’s legislation on residency in the next Budget.

From 2012  changes to Pensions law will affect all employers with at least one employee in the UK. If you’ve not had time to consider the impact of the proposed pension changes on your business, then read on.

What are the 2012 Pension reform changes?

Every employer in the UK will be required to automatically enrol eligible staff into a pension scheme;

Employers will be required by law to pay pension contributions;

Employers will have to register with The Pensions Regulator who will enforce the new laws and will have the power to issue penalties;

Existing workplace pensions will have to comply with these changes;

Employers can use their own pension scheme to comply with the new laws or rely on Government National Employment Savings Trust (NEST)

When will the Pensions law changes happen?

The new rules under the Pensions Act 2008 will come into effect from October 2012. The changes will be phased in depending on business size.

Who is it for?

This will affect all employees aged between 22 years and the state pension age earning more than £7,475 and not already in a qualifying pension.

How much will it cost?

This has caused much confusion but the aim is for staff to contribute 5% of qualified earnings with the employer contributing a minimum of 3%. Staff can choose to elect out of the scheme and consequently not contribute; employers do not have this option. While funding the pensions of existing staff wishing to enrol will manifest itself as an additional cost, it should be possible through properly worded contracts for employers to insulate themselves against this cost for new members of staff.

Find out more about pension reform changes

Ask a Business Pension question: join me on LinkedIn Tues,15 Nov @ 3pm.

My primary thought on the matter is that if the income taxable at 50% is “earned income” it will attract another 2% national insurance, so to be paying more tax than you take home is to say the least very disappointing. There is of course nothing new about high tax rates, in fact the top rate of tax in the year before I started working for the Inland Revenue was 60% and before that had been substantially higher!!  Throughout the post war period, the trend in rates of Income Tax was upwards, as the state increased its range of responsibilities. This was reversed under Margaret Thatcher. During her period as Prime Minister, the Basic Rate of Income Tax was reduced from 33 per cent to 25 per cent, and the Higher Rate from 83 per cent to 40 per cent, as part of her drive to reduce the “size” of government and free up private incomes

However, most family companies will have the ability to share money among themselves via the dividend route so for example a husband and wife sharing income equally could receive up to £300k gross without exposure to 50p tax. They also have the ability to retain income in the company and shelter it from tax until the rate is reduced if circumstances allow.

Furthermore, I can’t see it will be a disincentive to foreign investors because provided they are non resident they can trade using a limited company, enjoy our low corporation tax rates and pay the dividends overseas without further UK liability. In many cases such individuals will be based in low or no rate tax havens.

Politically I think it will be difficult to bring the rate down soon, not because of Nick Clegg or Vince Cable’s points of view but because I think it would be seen as very unfair to the public at large to drop the top tax rate while putting up tax and national insurance rates for the middle classes and stopping child benefit and tax credits. Personally I think we will see 50p tax until the end of this parliament (unless they want to lose the next election).

As to the argument that top rate taxes cost more than they bring in, I’m not entirely sure if I buy that as I suspect it assumes more people will leave the country than actually do. This is before you consider that most of the economists vocating this view will be 50p taxpayers themselves.

Further amendments to the VAT rules 1 January 2011 and the apparent Reverse Charge procedure are bringing about interesting results for those businesses who need to register and account for VAT in the UK.  The rule changes affect in particular those involved in Construction services (land and property) and those selling from a non EC country to another business in the UK.  The bottom line is that when you buy services from suppliers in other countries you may have to account for the VAT yourself depending on certain circumstances. This is known as the “Reverse Charge” and when it applies you act as if you are both the supplier and the customer i.e. you charge yourself the VAT and then claim it back on your VAT return and the two taxes effectively cancel each other out.

It is more essential than ever that businesses involved in land related supplies such as Construction companies  and those customers and suppliers trading cross borders should gain a thorough understanding of the rules.  Ask your VAT adviser or mark.busbydbsellek.co.uk to explain how the place of supply rules affect you.